Potential Downstream Markets in European Antitrust Law: A Concept in Need of Limiting Principles

John Temple Lang, Dec 22, 2011

Under European Union competition law, a dominant company has a duty to provide important inputs to its competitors. The leading cases involved vertically integrated dominant companies, which operated both harbors and car ferry companies. They were ordered to give access to their downsteam competitors, the other car ferry companies that needed access to the harbors. In these cases it was clear that there were two markets: a market for the supply of harbor services to ferry companies, and a separate market for the supply of ferry services to travelers. If all the other conditions for a duty to contract are fulfilled, the dominant company cannot avoid the duty merely by arguing that it has never granted access before. This led to the statement that it is enough if there is a “potential market” for the supply of the input in question by the dominant company, if the other conditions are fulfilled.

This phrase has led to arguments by competitors requesting one of several products sold only in combination by the dominant company, or one specific input out of the dominant company’s integrated operations, or the dominant company’s principal competitive advantage. In some cases competitors have claimed the right to use the dominant company’s intellectual property rights, to produce or use the dominant company’s products. In all these cases one important question is whether there is in any sense a “market” for an input that is used by the dominant company in the course of its activities. Since not everything that could be licensed or sold must be licensed or sold, there must be principles limiting the rights of competitors to demand access to the parts of a dominant company’s operations that they need.

A number of substantive questions, and some procedural questions, arise in such cases. The European Commission’s Guidance paper on exclusionary abuses makes it clear that there must be an “upstream” and a “downstream” market, but does not discuss or even fully list the other conditions of a duty to contract. This article argues that the “potential market” phrase means only that it is not a defense to show that the dominant company has never before made a contract of the kind suggested. If there is only one market on which the dominant company sells, a potential competitor has no right to insist on being given access to whatever inputs it needs to compete effectively on that market. Access may be ordered only if an identifiable abuse of the dominant position has been committed. To prove an abuse, harm to consumers, and not only to competitors, must be shown. The duty to contract must be the appropriate remedy to put an end to the abuse. If no duty to contract can be shown, there cannot be a duty to contract on the basis of a tying argument, among other reasons because in tying cases the competitor wants to sell its products to third parties, and complains that tying prevents it from doing so. In the cases discussed here, the competitor itself wants to be supplied, so that it can produce the products that it wants to make.